Goldman has told fund providers it is scaling back its role as a top lead market maker (LMM) for ETFs and has already slashed the number of funds it supports in that capacity, according to disclosures, fund managers and other trading firms this month.

Relatively high regulatory and other costs of operating as an LMM prompted the pullback by Goldman, one of the few large banks remaining in that role, some people said.

The move marks a rare retreat for Goldman, which doesn’t usually shy away from competition — particularly against smaller upstarts. However, smaller LMMs have much lower capital requirements than large firms like Goldman Sachs, putting them at a distinct advantage in an already low-margin industry.

LMMs help ETFs trade smoothly, because they provide the needed liquidity as buyers or sellers in thinly-traded funds. Some ETFs can go days without a single trade, so when an investor does want to buy or sell, a market maker must step up to take the other side of the transaction.